Value-added taxes put U.S. manufacturers at disadvantage

Thousands of U.S. producers have already shifted their production overseas to get the same tax break, and more are ready to follow. Even companies that don't want to leave the United States have little choice when faced by competitors who move overseas and cut their prices.

U.S. producers face another inducement because most banks are now reluctant o lend money to companies that refuse to move offshore, particularly to China.

The banks don't want to risk lending to a company facing such strong disadvantages.

The outsourcing of factories and jobs is devastating towns, counties and states all across America. It badly reduces the tax revenues that would otherwise be paid by successful U.S. companies and their employees.

Congress tried repeatedly to address this injustice by instructing our trade representatives, in 1974, 1988 and 2002, to negotiate away the unfair VAT advantage. Our so-called friends and "trading partners" refused to deal with the issue, or even to talk about it.

Congress tried another tack to redress the VAT imbalance by modifying our U.S. tax system in 1971, 1984, 2000 and 2004. But the European Union filed a case against us at the World Trade Organization in the early days of the George W. Bush administration and got the WTO to rule our legislation illegal.
Our laws were completely constitutional, but Congress decided to repeal them rather than risk a trade war.

The big question is, how can the United States offset this massive economic disadvantage that cost our producers $327 billion in 2006, and resulted in the loss of 3 million U.S. manufacturing jobs in the last six years?

Some members of Congress are now considering legislation to allow our government to impose a fee on imports from other nations that is exactly equal to the VAT subsidy given them by their home government, and also to give U.S. producers a rebate on their exports exactly equal to the VAT charge imposed on them by a foreign country. The former would more than pay for the latter, so this plan should be cost-free to U.S. taxpayers.

The goal would be to get equal treatment for U.S. producers both in home and in foreign markets. Our hope would be that foreign countries that have been enjoying the VAT scam would realize that the United States is no longer willing to be Uncle Sucker, so they had better change their policies and agree to a level playing field.